Attached files
file | filename |
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EX-32 - Royal Energy Resources, Inc. | v207456_ex32.htm |
EX-31 - Royal Energy Resources, Inc. | v207456_ex31.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended: November 30, 2010
File No.
000-52547
Royal Energy
Resources,
Inc.
(Name of
small business issuer in our charter)
Delaware
|
11-3480036
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
543 Bedford
Avenue,
#176, Brooklyn,
NY 11211
(Address
of principal executive offices) (Zip Code)
Registrant's
telephone number: 800-620-3029
Indicate
by check mark whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting
company x
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ¨ No x
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 72,613,731 shares of common stock outstanding
as of December 31, 2010.
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and pursuant to the rules and regulations of the Securities and Exchange
Commission ("Commission"). While these statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for fair
presentation of the results of the interim period, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the financial statements and footnotes thereto, contained in the Company’s Form
10-K dated August 31, 2010.
TABLE OF
CONTENTS
Page
|
||
PART
I – FINANCIAL INFORMATION
|
3
|
|
Item
1:
|
Condensed
Unaudited Financial Statements
|
3
|
Item
2:
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
Item
3:
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
Item
4T:
|
Controls
and Procedures
|
23
|
PART
II - OTHER INFORMATION
|
24
|
|
Item
1:
|
Legal
Proceedings
|
24
|
Item
1A:
|
Risk
Factors
|
24
|
Item
2:
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
24
|
Item
3:
|
Defaults
upon Senior Securities
|
24
|
Item
4:
|
Submission
of Matters to a Vote of Security Holders
|
24
|
Item
5:
|
Other
Information
|
24
|
|
||
Item
6:
|
Exhibits
|
24
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1: FINANCIAL STATEMENTS
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Condensed
Balance Sheets
November
30, 2010 (unaudited) and August 31, 2010
November
30,
|
August
31,
|
|||||||
2010
|
2010
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 5,480 | $ | 311 | ||||
Accounts
receivable
|
17,619 | 10,617 | ||||||
Prepaid
expenses
|
5,142 | 20,571 | ||||||
Total
current assets
|
28,241 | 31,499 | ||||||
Oil
and gas properties, on full cost method:
|
||||||||
Unproved
properties not being amortized
|
6,335 | 6,350 | ||||||
Other
assets
|
||||||||
Prepaid
drilling costs
|
- | 28,583 | ||||||
Investment
in uranium properties
|
4,329 | 4,329 | ||||||
Total
other assets
|
4,329 | 32,912 | ||||||
Total
assets
|
$ | 38,905 | $ | 70,761 | ||||
Liabilities
and Stockholders' Equity (Deficit)
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 60,857 | $ | 73,226 | ||||
Accrued
expenses
|
- | 243 | ||||||
Note
payable
|
80,000 | 86,000 | ||||||
Total
current liabilities
|
140,857 | 159,469 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity (deficit)
|
||||||||
Preferred
stock: $0.00001 par value; authorized
|
||||||||
10,000,000
shares; 100,000 at November 30, 2010 and
|
||||||||
at
August 31, 2010, issued and outstanding, respectively
|
1 | 1 | ||||||
Common
stock: $0.00001 par value; authorized 100,000,000 shares;
|
||||||||
72,613,731
and 39,713,731 shares issued and outstanding at
|
||||||||
November
30, 2010 and August 31, 2010, respectively
|
726 | 397 | ||||||
Additional
paid-in capital
|
3,407,564 | 3,267,893 | ||||||
Deferred
option and stock compensation
|
(10,952 | ) | (28,809 | ) | ||||
Common
stock subscription receivable
|
(545,632 | ) | (422,340 | ) | ||||
Deficit
accumulated during the development stage
|
(2,953,659 | ) | (2,905,850 | ) | ||||
Total
stockholders' equity (deficit)
|
(101,952 | ) | (88,708 | ) | ||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 38,905 | $ | 70,761 |
See
accompanying notes to condensed financial statements.
3
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Condensed
Statements of Operations
Three
Months Ended November 30, 2010 and 2009 and
from
inception (July 22, 2005) through November 30, 2010
(Unaudited)
Inception
|
||||||||||||
(July 22, 2005)
|
||||||||||||
Three Months Ended
|
Through
|
|||||||||||
November 30,
|
November 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Oil
and gas production
|
$ | - | $ | 2,045 | $ | 12,704 | ||||||
Total
revenues
|
- | 2,045 | 12,704 | |||||||||
Costs
and expenses:
|
||||||||||||
Lease
operating expense
|
504 | 1,362 | 14,494 | |||||||||
Production
taxes
|
- | 147 | 913 | |||||||||
Depreciation,
depletion and amortization
|
- | 256 | 2,148 | |||||||||
Asset
impairment
|
- | - | 75,164 | |||||||||
Non-cash
compensation
|
17,857 | 178,419 | 2,121,763 | |||||||||
Other
selling, general and administrative expense
|
28,964 | 56,149 | 634,198 | |||||||||
Total
costs and expenses
|
47,325 | 236,333 | 2,848,680 | |||||||||
Loss
from operations
|
(47,325 | ) | (234,288 | ) | (2,835,976 | ) | ||||||
Other
expenses (income):
|
||||||||||||
Loss
on disposition by rescission agreement of condominium
|
- | - | 15,000 | |||||||||
Loss
on comodities trading
|
- | 719 | 36,557 | |||||||||
Interest
income
|
- | - | (4,414 | ) | ||||||||
Interest
income - related party
|
(3,269 | ) | (1,243 | ) | (17,326 | ) | ||||||
Interest
expense
|
3,753 | 3,000 | 58,871 | |||||||||
484 | 2,476 | 88,688 | ||||||||||
Loss
before income taxes
|
(47,809 | ) | (236,764 | ) | (2,924,664 | ) | ||||||
Provision
for income taxes
|
- | - | - | |||||||||
Net
loss
|
$ | (47,809 | ) | $ | (236,764 | ) | $ | (2,924,664 | ) | |||
Net
loss per share, basic and diluted
|
$ | (0.00 | ) | $ | (0.01 | ) | ||||||
Weighted
average shares outstanding, basic and diluted
|
54,252,193 | 22,454,665 |
See
accompanying notes to condensed financial statements.
4
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity
Inception
of Development Stage, July 22, 2005, through November 30, 2010
Additional
|
||||||||||||||||||||
Preferred stock
|
Common stock
|
Paid-in
|
||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
||||||||||||||||
Inception,
July 22, 2005
|
- | - | 5,930,300 | 59 | 22,426 | |||||||||||||||
Sale
of common stock for cash
|
- | - | 320,000 | 3 | 31,997 | |||||||||||||||
Common
stock issued for real estate investment
|
- | - | 1,900,000 | 19 | 189,981 | |||||||||||||||
Contribution
to capital
|
- | - | - | - | 6,560 | |||||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance
August 31, 2005
|
- | - | 8,150,300 | 81 | 250,964 | |||||||||||||||
Sale
of common stock for cash
|
- | - | 1,086,667 | 12 | 120,488 | |||||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance,
August 31, 2006
|
- | - | 9,236,967 | 93 | 371,452 | |||||||||||||||
Sale
of common stock
|
- | - | 4,670,060 | 46 | 161,614 | |||||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance,
August 31, 2007
|
- | - | 13,907,027 | 139 | 533,066 | |||||||||||||||
Sale
of preferred stock
|
100,000 | 1 | - | - | 999 | |||||||||||||||
Sale
of common stock
|
- | - | 2,295,704 | 23 | 413,149 | |||||||||||||||
Common
stock issued for consulting contracts
|
- | - | 2,965,000 | 30 | 977,745 | |||||||||||||||
Cash
portion of consulting contracts
|
- | - | - | - | - | |||||||||||||||
Rescission
of real estate purchase
|
- | - | (1,900,000 | ) | (19 | ) | (199,981 | ) | ||||||||||||
Amortization
of prepaid consulting contracts:
|
||||||||||||||||||||
Non-cash
portion
|
- | - | - | - | - | |||||||||||||||
Cash
portion
|
- | - | - | - | - | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Payments
received
|
- | - | - | - | - | |||||||||||||||
Interest
accrued
|
- | - | - | - | - | |||||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance,
August 31, 2008
|
100,000 | 1 | 17,267,731 | 173 | 1,724,978 | |||||||||||||||
Sale
of common stock for cash
|
- | - | 20,000 | - | 3,600 | |||||||||||||||
Common
stock issued for consulting contracts
|
- | - | 3,551,000 | 36 | 887,403 | |||||||||||||||
Cash
portion of consulting contracts
|
- | - | - | - | - | |||||||||||||||
Amortization
of prepaid consulting contracts:
|
||||||||||||||||||||
Non-cash
portion
|
- | - | - | - | - | |||||||||||||||
Cash
portion
|
- | - | - | - | - | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Sold
|
- | - | 1,550,000 | 15 | 263,485 | |||||||||||||||
Payments
received
|
- | - | - | - | - | |||||||||||||||
Interest
accrued
|
- | - | - | - | - | |||||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance,
August 31, 2009
|
100,000 | $ | 1 | 22,388,731 | $ | 224 | $ | 2,879,466 |
(Continued)
See
accompanying notes to financial statements.
5
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity, continued
Inception
of Development Stage, July 22, 2005, through November 30, 2010
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
During
|
||||||||||||||||||||
Subscription
|
Deferred
|
Accumulated
|
Development
|
|||||||||||||||||
Receivable
|
Expenses
|
Deficit
|
Stage
|
Total
|
||||||||||||||||
(Restated
|
||||||||||||||||||||
Note
11)
|
||||||||||||||||||||
Inception,
July 22, 2005
|
- | - | (28,995 | ) | - | (6,510 | ) | |||||||||||||
Sale
of common stock for cash
|
- | - | - | - | 32,000 | |||||||||||||||
Common
stock issued for real estate investment
|
- | - | - | - | 190,000 | |||||||||||||||
Contribution
to capital
|
- | - | - | - | 6,560 | |||||||||||||||
Net
loss
|
- | - | - | (7,739 | ) | (7,739 | ) | |||||||||||||
Balance
August 31, 2005
|
- | - | (28,995 | ) | (7,739 | ) | 214,311 | |||||||||||||
Sale
of common stock for cash
|
- | - | - | - | 120,500 | |||||||||||||||
Net
loss
|
- | - | - | (80,825 | ) | (80,825 | ) | |||||||||||||
Balance,
August 31, 2006
|
- | - | (28,995 | ) | (88,564 | ) | 253,986 | |||||||||||||
Sale
of common stock
|
(81,590 | ) | - | - | - | 80,070 | ||||||||||||||
Net
loss
|
- | - | - | (95,813 | ) | (95,813 | ) | |||||||||||||
Balance,
August 31, 2007
|
(81,590 | ) | - | (28,995 | ) | (184,377 | ) | 238,243 | ||||||||||||
Sale
of preferred stock
|
- | - | - | - | 1,000 | |||||||||||||||
Sale
of common stock
|
- | - | - | - | 413,172 | |||||||||||||||
Common
stock issued for consulting contracts
|
- | (977,775 | ) | - | - | - | ||||||||||||||
Cash
portion of consulting contracts
|
- | (85,000 | ) | - | - | (85,000 | ) | |||||||||||||
Rescission
of real estate purchase
|
- | - | - | - | (200,000 | ) | ||||||||||||||
Amortization
of prepaid consulting contracts:
|
||||||||||||||||||||
Non-cash
portion
|
- | 338,547 | - | - | 338,547 | |||||||||||||||
Cash
portion
|
- | 43,529 | - | - | 43,529 | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Payments
received
|
13,400 | - | - | - | 13,400 | |||||||||||||||
Interest
accrued
|
(3,902 | ) | - | - | - | (3,902 | ) | |||||||||||||
Net
loss
|
- | - | - | (467,712 | ) | (467,712 | ) | |||||||||||||
Balance,
August 31, 2008
|
(72,092 | ) | (680,699 | ) | (28,995 | ) | (652,089 | ) | 291,277 | |||||||||||
Sale
of common stock for cash
|
- | - | - | - | 3,600 | |||||||||||||||
Common
stock issued for consulting contracts
|
- | (887,440 | ) | - | - | - | ||||||||||||||
Cash
portion of consulting contracts
|
- | (40,901 | ) | - | - | (40,901 | ) | |||||||||||||
Amortization
of prepaid consulting contracts:
|
||||||||||||||||||||
Non-cash
portion
|
- | 1,252,861 | - | - | 1,252,861 | |||||||||||||||
Cash
portion
|
- | 82,371 | - | - | 82,371 | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Sold
|
(77,500 | ) | - | - | - | 186,000 | ||||||||||||||
Payments
received
|
1,168 | 1,168 | ||||||||||||||||||
Interest
accrued
|
(3,545 | ) | (3,545 | ) | ||||||||||||||||
Net
loss
|
- | - | - | (1,723,711 | ) | (1,723,711 | ) | |||||||||||||
Balance,
August 31, 2009
|
$ | (151,969 | ) | $ | (273,808 | ) | $ | (28,995 | ) | $ | (2,375,800 | ) | $ | 49,120 |
See
accompanying notes to financial statements.
6
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity
Inception
of Development Stage, July 22, 2005, through November 30, 2010
Additional
|
||||||||||||||||||||
Preferred stock
|
Common stock
|
Paid-in
|
||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
||||||||||||||||
Balance
August 31, 2009
|
100,000 | $ | 1 | 22,388,731 | $ | 224 | $ | 2,879,466 | ||||||||||||
Common
stock issued for:
|
||||||||||||||||||||
Consulting
contracts
|
- | - | 2,525,000 | 25 | 81,475 | |||||||||||||||
Drilling
program participation
|
- | - | 100,000 | 1 | 5,999 | |||||||||||||||
Loan
extension
|
- | - | 700,000 | 7 | 13,993 | |||||||||||||||
Amortization
of prepaid
|
||||||||||||||||||||
Consulting
contracts
|
- | - | - | - | - | |||||||||||||||
Beneficial
conversion feature of convertible debt
|
- | - | - | - | 2,100 | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Sold
|
- | - | 14,000,000 | 140 | 284,860 | |||||||||||||||
Payments
received
|
- | - | - | - | - | |||||||||||||||
Interest
accrued
|
- | - | - | - | - | |||||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance
August 31, 2010
|
100,000 | $ | 1 | 39,713,731 | $ | 397 | $ | 3,267,893 | ||||||||||||
Amortization
of prepaid
|
||||||||||||||||||||
Consulting
contracts
|
- | - | - | - | - | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Sold
|
- | - | 33,000,000 | 330 | 139,670 | |||||||||||||||
Payments
received
|
- | - | - | - | - | |||||||||||||||
Interest
accrued
|
- | - | - | - | - | |||||||||||||||
Common
stock cancelled for rescinded drilling program
|
- | - | (100,000 | ) | (1 | ) | 1 | |||||||||||||
Net
loss
|
- | - | - | - | - | |||||||||||||||
Balance
November 30, 2010
|
100,000 | $ | 1 | 72,613,731 | $ | 726 | $ | 3,407,564 |
(Continued)
See
accompanying notes to financial statements.
7
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity, continued
Inception
of Development Stage, July 22, 2005, through November 30, 2010
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
During
|
||||||||||||||||||||
Subscription
|
Deferred
|
Accumulated
|
Development
|
|||||||||||||||||
Receivable
|
Expenses
|
Deficit
|
Stage
|
Total
|
||||||||||||||||
Balance,
August 31, 2009
|
$ | (151,969 | ) | $ | (273,807 | ) | $ | (28,995 | ) | $ | (2,375,800 | ) | $ | 49,120 | ||||||
Common
stock issued for:
|
||||||||||||||||||||
Consulting
contracts
|
- | (81,500 | ) | - | - | - | ||||||||||||||
Drilling
program participation
|
- | - | - | - | 6,000 | |||||||||||||||
Loan
extension
|
- | - | - | - | 14,000 | |||||||||||||||
Amortization
of prepaid consulting contracts:
|
- | 326,498 | - | - | 326,498 | |||||||||||||||
Beneficial
conversion feature of convertible debt
|
- | - | - | - | 2,100 | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Sold
|
(285,000 | ) | - | - | - | - | ||||||||||||||
Payments
received
|
21,239 | 21,239 | ||||||||||||||||||
Interest
accrued
|
(6,610 | ) | (6,610 | ) | ||||||||||||||||
Net
loss
|
- | - | - | (501,055 | ) | (501,055 | ) | |||||||||||||
Balance
August 31, 2010
|
(422,340 | ) | (28,809 | ) | (28,995 | ) | (2,876,855 | ) | (88,708 | ) | ||||||||||
Amortization
of prepaid
|
||||||||||||||||||||
Consulting
contracts
|
- | 17,857 | - | - | 17,857 | |||||||||||||||
Stock
subscription receivable:
|
||||||||||||||||||||
Sold
|
(140,000 | ) | - | - | - | - | ||||||||||||||
Payments
received
|
19,977 | - | - | - | 19,977 | |||||||||||||||
Interest
accrued
|
(3,269 | ) | - | - | - | (3,269 | ) | |||||||||||||
Common
stock cancelled for rescinded drilling program
|
- | - | - | - | - | |||||||||||||||
Net
loss
|
- | - | - | (47,809 | ) | (47,809 | ) | |||||||||||||
Balance
November 30, 2010
|
$ | (545,632 | ) | $ | (10,952 | ) | $ | (28,995 | ) | $ | (2,924,664 | ) | $ | (101,952 | ) |
See
accompanying notes to financial statements.
8
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Condensed
Statements of Cash Flows
Three
Months Ended November 30, 2010 and 2009, and
from
inception (July 22, 2005) through November 30, 2010
(Unaudited)
From inception
|
||||||||||||
July 22, 2005
|
||||||||||||
Three months ended
|
through
|
|||||||||||
November 30,
|
November 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Cash
flows from operating activities
|
||||||||||||
Net
loss
|
$ | (47,809 | ) | $ | (236,764 | ) | $ | (2,924,664 | ) | |||
Adjustment
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
and depletion
|
- | 256 | 2,148 | |||||||||
Value
of common shares issued for services
|
17,857 | 178,419 | 2,121,763 | |||||||||
Loss
on rescission of condominium purchase
|
- | - | 15,000 | |||||||||
Interest
accrued on stock subscription
|
(3,269 | ) | (1,243 | ) | (17,326 | ) | ||||||
Asset
impairment
|
- | - | 75,164 | |||||||||
Loan
extension paid with common stock
|
- | - | 14,000 | |||||||||
Beneficial
conversion feature of convertible note payable
|
- | - | 2,100 | |||||||||
Change
in other assets and liablities:
|
||||||||||||
Accounts
receivable
|
6,500 | (66 | ) | (367 | ) | |||||||
Prepaid
expenses and other assets
|
15,933 | 34,297 | 44,250 | |||||||||
Accounts
payable and accrued expenses
|
1,965 | 10,487 | (16,039 | ) | ||||||||
Net
cash used in operations
|
(8,823 | ) | (14,614 | ) | (683,971 | ) | ||||||
Cash
flows from investing activities
|
||||||||||||
Investment
in real estate
|
- | - | (11,000 | ) | ||||||||
Oil
and gas property expenditures
|
- | (3,777 | ) | (150,342 | ) | |||||||
Proceeds
from sale of undeveloped leasehold
|
15 | - | 70,290 | |||||||||
Investment
in uranium properties
|
- | - | (5,673 | ) | ||||||||
Net
cash provided by (used in) investing activities
|
15 | (3,777 | ) | (96,725 | ) | |||||||
Cash
flows from financing activities
|
||||||||||||
Proceeds
of stockholder loans
|
- | - | 50 | |||||||||
Proceeds
from subscription receivable
|
19,977 | 103 | 55,784 | |||||||||
Loan
proceeds
|
- | - | 146,000 | |||||||||
Loan
repayment
|
(6,000 | ) | - | (66,000 | ) | |||||||
Proceeds
from sale of common stock
|
- | - | 649,342 | |||||||||
Proceeds
from sale of preferred stock
|
- | - | 1,000 | |||||||||
Net
cash provided by (used in) financing activities
|
13,977 | 103 | 786,176 | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
5,169 | (18,288 | ) | 5,480 | ||||||||
Cash and cash
equivalents, beginning of period
|
311 | 18,680 | - | |||||||||
Cash and cash
equivalents, end of period
|
$ | 5,480 | $ | 392 | $ | 5,480 |
(Continued)
See
accompanying notes to condensed financial statements.
9
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
Condensed
Statements of Cash Flows, Continued
Three
Months Ended November 30, 2010 and 2009, and
from
inception (July 22, 2005) through November 30, 2010
(Unaudited)
From inception
|
||||||||||||
July 22, 2005
|
||||||||||||
Three months ended
|
through
|
|||||||||||
November 30,
|
November 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Supplemental
cash flow information
|
||||||||||||
Cash
paid for interest
|
$ | 3,753 | $ | 3,000 | $ | 27,128 | ||||||
Cash
paid for income taxes
|
- | - | - | |||||||||
Non-cash
investing and financing activities:
|
||||||||||||
Issuance
of common stock for real estate
|
$ | - | $ | - | $ | 190,000 | ||||||
Contribution
of stockholder loan to capital
|
- | - | 6,560 | |||||||||
Disposition
of real estate per stock rescission agreement
|
- | 200,000 | 200,000 | |||||||||
Common
stock issued for participation in drilling program
|
- | - | 6,000 | |||||||||
Common
stock issued for stock subscription receivables
|
140,000 | - | 583,922 | |||||||||
Accounts
receivable exchanged for accounts payable
|
14,578 | - | 14,578 | |||||||||
Drilling
prepayment transferred to accounts receivable
|
28,079 | - | 28,079 | |||||||||
Common
stock cancelled for rescinded drilling program
|
1,000 | - | 1,000 |
See
accompanying notes to condensed financial statements.
10
ROYAL
ENERGY RESOURCES, INC.
(A
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
November
30, 2010
(Unaudited)
|
1
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of presentation
These
financial statements include the accounts of Royal Energy Resources, Inc.
(“RER”) (formerly known as World Marketing, Inc. ("WMI"). RER is a development
stage enterprise within the meaning of Financial Accounting Standards Board
Topic 915.
RER was
organized in 1999 and attempted to start a web-based marketing business for
health-care products. The health-care products business had no
revenue and was discontinued in 2001 and the Company remained inactive until
July 22, 2005 when it commenced its real estate
business. Accordingly, the current development stage has a
commencement date of July 22, 2005 and all prior losses of $28,995 have been
transferred to accumulated deficit.
The
condensed financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation. These condensed financial statements have not
been audited.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations for interim reporting. The Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
However, these condensed financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report for the year ended August 31, 2010.
In
preparing the accompanying unaudited condensed consolidated financial
statements, the Company has reviewed, as determined necessary by the Company's
management, events that have occurred after November 30, 2010, up until the
issuance of the financial statements.
11
Organization
and nature of business
RER is a
Delaware corporation which was incorporated on March 22, 1999, under the name
Webmarketing, Inc. ("Webmarketing"). On July 7, 2004, the Company revived its
charter and changed its name from Webmarketing to World Marketing,
Inc. In December 2007 the Company changed its name to Royal Energy
Resources, Inc.
Commencing
at the end of August 2006, the Company began acquiring oil and gas and uranium
leases and has since resold some of its leases and retained an overriding
royalty interest. During the last half of fiscal 2008, the Company
invested in three oil & gas drilling prospects in Washington County,
Oklahoma, and had advanced additional funds to participate in three
re-works. Two wells began initial sales in November
2008. All workover attempts were unsuccessful and the properties were
abandoned during fiscal 2010. All proven properties were sold
effective October 1, 2010.
The
Company is currently pursuing gold, silver, copper and rare earth metals mining
concessions in Romania, Bulgaria and Canada and mining leases in the United
States. If successful, the Company plans to concentrate its efforts
to develop these properties.
On July
22, 2005, the Company began selling its common stock to obtain the funds
necessary to begin implementation of its new business plan. The primary
objective of the new business plan was to acquire, make necessary renovations
and resell both residential and commercial real estate. The Company expected to
acquire real estate using cash, mortgage financing or its common stock, or any
combination thereof, and anticipated that the majority of the properties
acquired would be in the New York City area. The Company rescinded the purchase
of the real estate property it had previously acquired during the quarter ended
May 31, 2008 and currently is limiting any potential real estate acquisitions to
Eastern European countries, due to the current real estate environment in the
United States.
Webmarketing
attempted to establish a web-based marketing business for health care products
from its inception in 1999 until 2001. However, the Company did not establish
any revenues and discontinued these operations in 2001.
Going
Concern
The
Company has not established sources of revenues sufficient to fund the
development of business, projected operating expenses and commitments for the
next year. The Company, which has been in the development stage since its
inception, March 22, 1999, has accumulated a net loss of $2,953,659 ($28,995 in
a prior development stage) through November 30, 2010, and incurred losses of
$47,809 for the three months then ended.
RER was
organized in 1999 and attempted to start a web-based marketing business for
health-care products. The health-care products business had no
revenue and was discontinued in 2001 and the Company remained inactive until
July 22, 2005 when it commenced its real estate
business. Accordingly, the current development stage has a
commencement date of July 22, 2005 and all prior losses of $28,995 have been
transferred to accumulated deficit.
12
In March
2006, the Company sold 650,000 shares of its common stock for $65,000 to provide
a portion of the cash required to purchase its first real estate
investment. Subsequently, the Company continued to sell its
common stock to raise capital to continue operations. During 2008,
the Company revised its business plan, rescinded its real estate purchase and
began investing in energy leases and oil and gas drilling
prospects. However, while energy prices have improved the energy
business has a high degree of risk and there can be no assurance that the
Company will be able to obtain sufficient funding to develop the Company's
current business plan.
Cash
and cash equivalents
The
Company considers all cash on hand, cash in banks and all highly liquid debt
instruments purchased with a maturity of three months or less to be cash and
cash equivalents.
Revenue
recognition
Revenue
from the sale of oil and gas leases is recognized in accordance with the
provisions of full cost accounting.
Oil and
gas production income will be recognized when the product is delivered to the
purchaser. We will receive payment from one to three months after
delivery. At the end of each month, we will estimate the amount of
production delivered to purchasers and the price we will
receive. Variances between our estimated revenue and actual payment
are recorded in the month the payment is received; however, differences should
be insignificant.
Revenue
from real estate sales is recognized when the related property is subject to a
binding contract and all significant obligations have been
satisfied.
Stock
option plans
The
compensation cost relating to share-based payment transactions (including the
cost of all employee stock options) is required to be recognized in the
financial statements. That cost will be measured based on the
estimated fair value of the equity or liability instruments
issued. The accounting literature covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans.
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models may not necessarily provide a reliable
single measure of the fair value of its options. However, the
Black-Scholes option valuation model provides the best available estimate for
this purpose.
13
Property
and equipment
The
Company follows the full cost method of accounting for oil and natural gas
operations. Under this method all productive and nonproductive costs
incurred in connection with the acquisition, exploration and development of oil
and natural gas reserves are capitalized. No gains or losses are
recognized upon the sale or other disposition of oil and natural gas properties
except in transactions that would significantly alter the relationship between
capitalized costs and proved reserves. The costs of unevaluated oil
and natural gas properties are excluded from the amortizable base until the time
that either proven reserves are found or it has determined that such properties
are impaired. The Company had $6,335 and $6,350 at November 30, 2010
and August 31, 2010, respectively in unproved property costs that have not been
evaluated and are not being amortized. As properties are evaluated,
the related costs would be transferred to proven oil and natural gas properties
using full cost accounting. Amortization in the amount of $256 was
recorded during the three months ended November 30, 2009 and none was recorded
in the 2010 period.
Under the
full cost method the net book value of oil and natural gas properties, less
related deferred income taxes, may not exceed the estimated after-tax future net
revenues from proved oil and natural gas properties, discounted at 10% (the
“Ceiling Limitation”). In arriving at estimated future net revenues,
estimated lease operating expenses, development costs, and certain
production-related taxes are deducted. In calculating future net
revenues, prices and costs in effect at the time of the calculation are held
constant indefinitely, except for changes that are fixed and determinable by
existing contracts. The net book value is compared to the ceiling
limitation on a quarterly and yearly basis. The excess, if any, of
the net book value above the ceiling limitation is charged to expense in the
period in which it occurs and is not subsequently reinstated. Reserve
estimates used in determining estimated future net revenues have been prepared
by a consultant to the Company.
The
Company assesses the recoverability of the carrying value of its non-oil and gas
long-lived assets when events occur that indicate an impairment in value may
exist. An impairment loss is indicated if the sum of the expected
undiscounted future net cash flows is less than the carrying amount of the
assets. If this occurs, an impairment loss is recognized for the
amount by which the carrying amount of the assets exceeds the estimated fair
value of the asset. No impairments of non-oil and gas long-lived
assets have been recorded as of November 30, 2010.
Depreciation
and amortization
All
capitalized costs of oil and natural gas properties and equipment, including the
estimated future costs to develop proved reserves, are amortized using the
unit-of-production method based on total proved
reserves. Depreciation of other equipment is computed on the straight
line method over the estimated useful lives of the assets, which range from
three to twenty-five years.
14
Natural
gas sales and gas imbalances
The
Company follows the entitlement method of accounting for natural gas sales,
recognizing as revenues only its net interest share of all production
sold. Any amount attributable to the sale of production in excess of
or less than the Company’s net interest is recorded as a gas balancing asset or
liability. At November 30, 2010 and August 31, 2010, there were no
natural gas imbalances.
Investments
in real estate
Costs
associated with the acquisition, development and construction of real estate
properties are capitalized when incurred. The carrying value of the properties
will be reviewed, at least annually, for impairment. In the event the property
is leased, depreciation will be recorded based upon a thirty-year
life. The Company rescinded the purchase of the real estate property
it had during the quarter ended May 31, 2008.
Oil
and natural gas reserve estimates
The
Company prepared its oil and natural gas reserves with the assistance of a
consultant. Proved reserves, estimated future net revenues and the
present value of our reserves are estimated based upon a combination of
historical data and estimates of future activity. Consistent with SEC
requirements, we have based our present value of proved reserves on spot prices
on the date of the estimate. The reserve estimates are used in
calculating depletion, depreciation and amortization and in the assessment of
the Company’s Ceiling Limitation. Significant assumptions are
required in the valuation of proved oil and natural gas reserves which, as
described herein, may affect the amount at which oil and natural gas properties
are recorded. Actual results could differ materially from these
estimates.
Deferred
income taxes
Deferred
income taxes are provided for temporary differences between financial and tax
reporting in accordance with the liability method. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets
unless management believes it is more likely than not that such asset will be
realized.
Earnings
(loss) per common share
RER is
required to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive shares outstanding. At November 30, 2010
and 2009, there were no common stock equivalents. Accordingly, basic and diluted
earnings per share are the same for all periods presented.
15
Use
of estimates in the preparation of financial statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Credit
risk
The
Company had cash deposits in certain banks that at times exceeded the maximum
insured by the Federal Deposit Insurance Corporation. The Company
monitors the financial condition of the banks and has experienced no losses on
these accounts.
Contingencies
Certain
conditions may exist as of the date financial statements are issued, which may
result in a loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur. Company management and its
legal counsel assess such contingencies related to legal proceeding that are
pending against the Company or unasserted claims that may result in such
proceedings, the Company’s legal counsel evaluates the perceived merits of any
legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein. If the
assessment of a contingency indicates that it is probably that a liability has
been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial
statements. If the assessment indicates that a potentially material
loss contingency is not probable but is reasonably possible, or if probable but
cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable would be
disclosed.
Asset
retirement obligations
The fair
value of a liability for an asset retirement obligation is required to be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made, and that the associated retirement costs be capitalized
as part of the carrying amount of the long-lived asset. The Company
determines its asset retirement obligation by calculating the present value of
the estimated cash flows related to the liability. Periodic accretion
of the discount of the estimated liability would be recorded in the statement of
operations. At November 30, 2010 and August 31, 2010, the Company had
no working interests from which they would have had a plugging or abandoning
liability.
Recent
accounting pronouncements
Below is
a listing of the most recent accounting standards and their effect on the
Company.
16
In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-03 (ASU 2010-03), Extractive Activities—Oil and Gas (Topic
932): Oil and Gas Reserve Estimation and Disclosures. This amendment
to Topic 932 has improved the reserve estimation and disclosure requirements by
(1) updating the reserve estimation requirements for changes in practice and
technology that have occurred over the last several decades and (2) expanding
the disclosure requirements for equity method investments. This is
effective for annual reporting periods ending on or after December 31,
2009. However, an entity that becomes subject to the disclosures
because of the change to the definition oil- and gas- producing activities may
elect to provide those disclosures in annual periods beginning after December
31, 2009. Early adoption is not permitted. The Company
adopted the provisions of ASU 2010-03 on August 31, 2010 which did not have a
material effect on the financial position, results of operations or cash flows
of the Company.
Fair
value determination
Financial
instruments consist of cash, marketable securities, promissory notes receivable,
accounts payable, accrued expenses and short-term borrowings. The carrying
amount of these financial instruments approximates fair value due to their
short-term nature or the current rates at which the Company could borrow funds
with similar remaining maturities.
2
|
INVESTMENT
IN ENERGY PROPERTIES
|
MINING
The
Company is currently pursuing gold, silver, copper and rare earth metals mining
concessions in Romania, Bulgaria and Canada and mining leases in the United
States. If successful, the Company plans to concentrate its efforts
to develop these properties.
UNDEVELOPED
LEASEHOLD NOT BEING AMORTIZED
The
Company has been the successful bidder in United States Government auctions to
purchase certain oil and gas lease rights. The oil and gas leases
currently comprise approximately 3,400 acres in Weston, Goshen, Niobrara,
Converse, Campbell, Freemont, Laramie, Sublette and Platt Counties, Wyoming as
of November 30, 2010 and August 31, 2010, respectively. In addition,
the Company holds the lease for uranium rights on approximately 1,000 acres in
Wyoming as of November 30, 2010 and August 31, 2010, respectively.
The
Company is negotiating with energy companies to develop the potential resources
that may be contained in these properties. The Company has entered
into agreements and then sold, by assignment, the rights, title and interest in
certain of these leases and retained an over-riding royalty
interest. Revenue from these transactions is accounted for using the
full cost method of accounting.
17
OIL
AND GAS PRODUCING PROPERTIES
During
fiscal 2008, the Company prepaid $119,153 as estimated drilling and completion
costs for a 25% working interest in three wells in Washington County,
Oklahoma. Two of the wells were completed in September and October
2008 and the third well was abandoned in 2010. During 2009, the
Company advanced an additional $42,000, net, to apply toward workover of three
additional wells. All workover attempts were unsuccessful and the
properties were abandoned in 2010. All proven reserves were sold
effective October 1, 2010 and the net proceeds was included in accounts
receivable at August 31, 2010. The cost in excess of proceeds of
$19,308 was included in asset impairment at August 31, 2010.
Prepaid
drilling costs includes $28,583 at August 31, 2010. Upon sale of the
proved properties, discussed above, the $28,079 balance in prepaid drilling
costs was transferred to accounts receivable.
3
|
CONVERTIBLE
NOTES PAYABLE
|
The
Company has a loan with an individual in the original amount of $140,000, with
interest payable monthly at 15% and which was extended to January 1, 2010 and
revised to be convertible into common stock at a conversion price to be
reasonably agreed upon by the parties. The loan is currently past due
and has a balance of $80,000 at November 30, 2010 and August 31,
2010. The Company issued 21,000,000 shares of the Company's common
stock to a group of individuals who agreed to repay the balance of the $80,000
loan. The sale of the shares is being account for as a stock
subscription until the note is repaid.
On April
13, 2010, the Company issued a convertible debenture in the amount of
$6,000. The debenture bears interest at the rate of $10% per annum,
was due on September 13, 2010, is convertible into the Company's common stock at
a conversion rate of 65% of the lowest closing bid price of the common stock
during the immediately preceding 30 trading days and there is no pre-payment
penalty. Accordingly, at issuance, $2,100 of the proceeds was
assigned to the conversion feature. The discount was amortized over
the five-month term of the note.
Face
amount of the debenture
|
$ | 6,000 | ||
Unamortized
balance of the intrinsic value of the conversion
feature
|
- | |||
Carrying
value of the debenture
|
$ | 6,000 |
The
debenture was repaid in September 2010.
18
4
|
STOCKHOLDERS’
EQUITY
|
Common
stock
In
November 2007, the Company amended its charter to authorize issuance of up to
100,000,000 shares of common stock with a par value of $.00001. The
amendment became effective on December 12, 2007, upon filing with the Delaware
secretary of state. At November 30, 2010 and August 31, 2010,
72,613,731 and 39,713,731 shares were issued and outstanding,
respectively.
Series A preferred
stock
In
November 2007, the Company amended its charter to authorize issuance of up to
10,000,000 shares of its $0.00001 preferred stock. The amendment
became effective on December 12, 2007, upon filing with the Delaware secretary
of state. In December 2007 the Company issued 100,000 shares of its
Series A preferred stock to its President and Chief Executive Officer for
$1,000. The certificate of designation of the Series A preferred
stock provides: the holders of Series A preferred stock shall be entitled to
receive dividends when, as and if declared by the board of directors of the
Company; participates with common stock upon liquidation; convertible into one
share of common stock; and has voting rights such that the Series A preferred
stock shall have an aggregate voting right for 54% of the total shares entitled
to vote.
Stock option
plan
The Royal
Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27,
2008 and reserves 4,000,000 shares for Awards under the Plan, of which up to
3,000,000 may be designated as Incentive Stock Options. The Company’s
Compensation Committee is designated to administer the Plan at the direction of
the Board of Directors. No options are outstanding under the Plan at
November 30, 2010.
Consulting and financial
services agreements
The
Company has entered into various consulting and financial services agreements as
well as a new loan agreement. The cost associated with the agreements is
being amortized over the period of the agreements. The unamortized
balance of the agreements was $10,952 and $28,809 at November 30, 2010 and
August 31, 2010, respectively.
Transactions during the
period ended November 30, 2010
On
September 28, 2010, the Company issued 21,000,000 shares to a group of
individuals who agreed to pay $80,000 to retire the Company's note
payable. This obligation will be accounted for as a subscription
receivable by the Company until the note is paid.
On
November 30, 2010, the Company's CEO acquired 12,000,000 shares of the Company's
common stock for a stock subscription receivable of $59,880 and cash of
$120.
Effective
November 30, 2010, the 100,000 shares which the Company had issued for first
right of refusal to participate in a drilling program were returned when the
originally proposed drilling program was cancelled. The shares were
returned to the transfer agent and retired.
19
5
|
STOCK
SUBSCRIPTION RECEIVABLE
|
The
officers and directors of the Company have acquired common stock from the
Company pursuant to note agreements, summarized as follows.
Original
|
Interest
|
Balance
|
Balance
|
|||||||||||||||||
Name
|
Shares
|
Balance
|
Rate
|
11/30/2010
|
8/31/2010
|
|||||||||||||||
Jacob
Roth
|
31,050,000 | $ | 473,865 | 2-5 | % | $ | 431,771 | $ | 391,749 | |||||||||||
Frimet
Taub
|
600,000 | 29,937 | 2 | % | 29,937 | 29,937 | ||||||||||||||
461,708 | 421,686 | |||||||||||||||||||
Accrued
interest
|
3,924 | 654 | ||||||||||||||||||
Related
party total
|
465,632 | 422,340 | ||||||||||||||||||
Debt
retirement
|
21,000,000 | 80,000 | 0 | % | 80,000 | - | ||||||||||||||
$ | 545,632 | $ | 422,340 |
6
|
RELATED
PARTY TRANSACTIONS
|
The
President and Chief Executive Officer of the Company made loans and advances to
the Company since its inception. During fiscal 2005, the total amount of $6,560
was contributed to the capital of the Company.
In
December 2007 the Company issued 100,000 shares of its Series A preferred stock
to its President and Chief Executive Officer for $1,000. The
certificate of designation of the Series A preferred stock provides: the holders
of Series A preferred stock shall be entitled to receive dividends when, as and
if declared by the board of directors of the Company; participates with common
stock upon liquidation; convertible into one share of common stock; and has
voting rights such that the Series A preferred stock shall have an aggregate
voting right for 54% of the total shares entitled to vote.
The
President and Chief Executive Officer of the Company was paid approximately
$2,575 and $4,100 for office and travel expense reimbursements during the three
month periods ended November 30, 2010 and 2009, respectively.
See Note
5 above regarding stock subscription receivables.
7
|
SUBSEQUENT
EVENT
|
The
Company is forming a Romanian subsidiary to be used to acquire and develop
possible gold, silver and copper mining concessions in
Romania.
20
Item
2:
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
This
statement contains forward-looking statements within the meaning of the
Securities Act. Discussions containing such forward-looking
statements may be found throughout this statement. Actual events or
results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including the matters set forth in
this statement.
At the
present time we have only nominal overhead costs. Our officers do not
receive any payroll and our administrative assistance is now being provided on a
reimbursement basis. This situation will remain constant until such
time as we have sufficient capital to afford to pay salaries.
The
Company was the successful bidder in United States Government auctions to
purchase certain oil and gas lease rights. The oil and gas leases
currently represent approximately 3,400 acres of property located in Weston,
Goshen, Niobrara, Converse, Campbell, Freemont, Laramie, Sublette and Platt
County Wyoming. The Company also holds leases for the uranium rights
on approximately 1,000 acres in Wyoming. The Company is negotiating
with energy companies to develop the potential resources that may be contained
in these properties. The Company has completed several transactions
wherein the Company sold the lease rights and retained a royalty interest and
have sold the royalty interest in one transaction. No exploration
activities have yet taken place. The Company has received proceeds of
$70,275 from these transactions.
The
Company is currently pursuing gold, silver, copper and rare earth metals mining
concessions in Romania, Bulgaria and Canada and mining leases in the United
States. If successful, the Company plans to concentrate its efforts
to develop these properties.
Going
Concern
The
Company has not established sources of revenues sufficient to fund the
development of business, projected operating expenses and commitments for the
next year. The Company, which has been in the development stage since its
inception, March 22, 1999, has accumulated a net loss of $2,953,659 ($28,995 in
a prior development stage) through November 30, 2010, and incurred losses of
$47,809 for the three months then ended.
RER was
organized in 1999 and attempted to start a web-based marketing business for
health-care products. The health-care products business had no
revenue and was discontinued in 2001 and the Company remained inactive until
July 22, 2005 when it commenced its real estate
business. Accordingly, the current development stage has a
commencement date of July 22, 2005 and all prior losses of $28,995 have been
transferred to accumulated deficit.
In March
2006, the Company sold 650,000 shares of its common stock for $65,000 to provide
a portion of the cash required to purchase its first real estate
investment. Subsequently, the Company continued to sell its
common stock to raise capital to continue operations. During 2008,
the Company revised its business plan, rescinded its real estate purchase and
began investing in energy leases and oil and gas drilling
prospects. However, while energy prices have improved the energy
business has a high degree of risk and there can be no assurance that the
Company will be able to obtain sufficient funding to develop the Company's
current business plan.
21
COMPARISON
OF THREE MONTHS ENDED NOVEMBER 30, 2010 AND 2009
We had
revenue from oil and gas production of $2,045 during the three months ended
November 30, 2009. The Company sold its producing oil properties
effective October 1, 2010 and had no revenue during the 2010
quarter.
Non-cash
compensation amounted to $17,857 in fiscal 2010 as compared to $178,419 in
fiscal 2009. Non-cash compensation is from the amortization of the
calculated value of common shares issued for consulting
agreements. (Note 4).
During
the three-month period in fiscal 2010, selling, general and administrative
expenses amounted to $28,964 as compared to $56,149 in the year earlier
period. Decreases are primarily due to a decrease in cash consulting
fees and lower professional services.
During
the three-month period in fiscal 2010, we recognized interest expense of $3753
and recorded interest income in the amount of $3,269 from related
parties. During the three-month period in fiscal 2009, we recognized
a loss of $719 from commodities trading, recognized interest expense of $3,000
and recorded interest income in the amount of $1,243 from related
parties.
OFF-BALANCE
SHEET ARRANGEMENTS
None.
22
ITEM
3:
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
ITEM
4T:
|
CONTROLS
AND PROCEDURES
|
1
|
(a)
Evaluation of Disclosure Controls and
Procedures
|
The
Company’s Chief Executive Officer has reviewed and evaluated the effectiveness
of the Company’s disclosure controls and procedures (as defined in Rules
240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934) as of November 30, 2010. Based on that review and evaluation,
which included inquiries made to certain consultants of the Company, the CEO
concluded that the Company’s current disclosure controls and procedures, as
designed and implemented, are not effective, primarily due to a lack of
segregation of duties, in ensuring that information relating to the Company
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, including insuring that such information is accumulated and
communicated to the Company’s management, including the CEO, as appropriate to
allow timely decisions regarding required disclosure.
(b) Changes in
Internal Controls
There
have been no changes in internal controls over financial reporting or in other
factors that could significantly affect these controls that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting during the quarter ended November 30, 2010, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
23
PART
II - OTHER INFORMATION
ITEM
1:
|
LEGAL
PROCEEDINGS
|
None
ITEM
1A:
|
RISK
FACTORS
|
Not
applicable.
ITEM
2:
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
During
the three months ended November 30, 2010, the Company issued 21,000,000 shares
of its common stock, valued at $80,000 to a group of individuals who agreed to
pay off the Company's convertible note payable. This amount is
included in stock subscription receivable. In addition, the Company
sold 12,000,000 shares to its Chief Executive Officer for $120 in cash and a
note in the amount of $59,880.
The
shares issued were sold pursuant to an exemption from registration under Section
4(2) promulgated under the Securities Act of 1933, as amended.
ITEM
3:
|
DEFAULTS
UPON SENIOR SECURITIES.
|
None
ITEM
4:
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
None
ITEM
5:
|
OTHER
INFORMATION.
|
None
ITEM
6:
|
EXHIBITS
|
Exhibit
31
|
Certification
pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act
of 2002
|
Exhibit
32
|
Certification
pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act
of
2002
|
24
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ROYAL
ENERGY RESOURCES, INC.
|
||
Date: January
5, 2011
|
||
By: /s/
|
Jacob Roth
|
|
President,
Chief Executive Officer and
|
||
Chief
Financial Officer
|
25